Global Equity Outlook
Checking the Transmission
Fundamental Equity
2nd Quarter 2017
Last quarter, we shared our view that the change in the US administration could lead to pro-
growth policies with signifcant implications for equity investors (1Q2017 Global Equity Outlook:
From Low Growth to Pro-Growth). Since then, optimism on the economy has indeed soared, but
we believe it needs to be converted into confdence to ignite corporate °animal spirits±. In this
quarterly outlook, we explore transmission mechanisms, potential headwinds, and mileposts that
may indicate this transition is underway.
and earnings forecasts are trending upward in all major regions for the frst time since 2010.
US equities have reached all-time highs and valuations are expensive in many regions globally,
refecting investor and business optimism about the potential for pro-growth policies that could
support further economic and earnings growth (p. 2).
generating real business activity and maintaining investor enthusiasm. We think
deregulation and tax reform are critical components of this transition. Regulatory reform is
easier to enact because it can largely be accomplished with executive orders. Tax reform may
be more challenging, but we think it is the key to reviving confdence (p. 3).
failure to pass healthcare reform (to date) has increased the risks around the administrationˉs
ability to execute on other elements of its pro-growth agenda. European political risk remains
elevated, but may actually be receding, given the results of recent elections in the Netherlands
and France. Polls in France indicate that Emmanuel Macron is likely to defeat the nationalist
candidate Marine Le Pen in the second round election on May 7 (p. 4).
include rising corporate investment and earnings growth meeting or exceeding
forecasts. We believe it is important to see fundamentals catch up to expectations, particularly
given todayˉs full equity valuations (p. 5).
core expectation of stronger global growth. We are still positive on the US but recognize
that legislative challenges could slow the pace of pro-growth policy implementation. We are
more bullish on Europe than last quarter due to earnings upgrades and potentially receding
political risk. We continue to believe economic momentum will support EM equities, and
remain optimistic on corporate fundamentals in Japan (p.6).
This material is provided for educational purposes only and should not be construed as investment advice or an offer or solici
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